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Global PE fundraising slows in Q3 2011

During Q3 2011, 97 private equity funds reached a final close, raising an aggregate USD44.8bn, according to Preqin. While the latest quarterly figures are expected to improve slightly (10-20%) as more information becomes available, fundraising levels are significantly down on those seen in recent quarters.

Some USD82.8bn was raised by 175 funds that closed in Q2 2011. In addition to the 97 funds that reached a final close in the quarter, a further 109 funds held interim closes, securing commitments totalling USD42.7bn towards their

Funds primarily focusing on North America have raised the most capital during Q3 2011, with 37 funds raising a total of USD22.5bn. Europe-focused funds raised an aggregate USD11.3bn, with 28 funds targeting the region reaching a final close this quarter. 32 funds focusing primarily on Asia and Rest of World gathered a total of USD11.0bn.

Buyout funds raised the most capital in Q3 2011, with 19 funds raising an aggregate USD14.4bn. This figure includes Berkshire Fund VIII, which closed in July 2011 on USD4.5bn, exceeding its initial USD4bn target. 16 real estate funds closed in Q3 2011, raising an aggregate USD10.8bn. The largest fund to close this quarter was a real estate fund; Lone Star Fund VII exceeded its USD4bn target to raise USD4.63bn. Five distressed private equity funds reached a final close this quarter, securing aggregate commitments of USD6.5bn; two-thirds of this capital was raised by the USD4.4bn Centerbridge Capital Partners II.

In addition to the 97 funds holding a final close in Q3 2011, 109 funds held interim closes, raising a total of USD42.7bn towards their overall targets. USD18.4bn of this was raised by the 26 Europe-focused funds that held interim closes this quarter. Significant interim closes this quarter include BC European Cap IX, which has raised €5.5bn towards its target of €6.5bn, and EQT VI, which secured commitments totaling €3.5bn for its first close in July and expects to hold a final close in Q4 2011.

As of October 2011, there are 1,728 funds on the road seeking a combined USD706bn, an increase on the USD680bn sought by the 1,676 funds on the road in Q2 2011, but still significantly less than the USD888bn sought by 1,624 funds on the road as of January 2009.

Funds that closed in Q3 2011 took an average of 17 months to fundraise. While this is significantly more than the average of 11.4 months taken to raise a fund in 2007, it is still an improvement on the average of 20.4 months taken to raise funds closed in 2010.

Some 66% of a sample of 120 LPs interviewed by Preqin in August and September 2011 stated an intention to invest in private equity over the next 12 months. This is almost the same proportion as was seen prior to recent volatility in public markets; 67% of a sample of 120 LPs interviewed in June and July 2011 told us they planned to invest in private equity over the next 12 months.

Most investors have remained satisfied with their private equity fund investments, with 81% of investors participating in a Preqin study in June stating that their private equity portfolios had met or exceeded their expectations.

Some 91% of investors participating in the June study expect to maintain or increase their allocations to private equity in the longer term.

“Private equity fundraising was extremely challenging in the third quarter of 2011, with September a particularly slow month for fundraising; just USD8.9bn was raised by the 33 funds to close that month," says Helen Kenyon, Senior Manager at Preqin. "Although we anticipate the latest quarterly fundraising figures to improve by around 10-20% as more information becomes available, fundraising in Q3 2011 is still set to fall short of the level seen in Q2, when USD82.8bn was raised by the 175 funds that closed in the quarter.

"While recent market uncertainty and declines in deal flow have had an impact on the investment plans of institutional investors towards private equity in the immediate term, few have changed their plans for investing in the asset class over the next 12-18 months. Two-thirds of investors participating in each of two studies of investors conducted in June-July and in August-September intend to make new commitments to private equity funds in the following 12 months. This suggests that although investors are approaching new private equity investments with extreme caution, most intend to remain active in the coming months and over the longer term.

"Although this is encouraging news for managers on the road, it is still important to note just how many firms are currently competing for investor commitments. 1,728 funds are seeking capital at present, more than has been seen at any point in the past couple of years, and it is set to remain extremely difficult for managers to stand out in this crowded market.”

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